Researcher: Gold May Hit $1,600 This Year on Strong Demand

Gold will rise as much as 13 percent this year to a record $1,600 an ounce, extending a rally that began in 2001, as investors boost demand for the metal as an inflation hedge, said researcher GFMS Ltd.

Prices in New York touched an all-time high of $1,478 on April 11 amid speculation that governments will keep borrowing costs near record lows to revive economic growth, increasing the risk of accelerated costs for consumers. Total gold demand rose 0.4 percent to 4,334 metric tons in 2010, the third straight gain, according to an annual report from GFMS.

“The prospects for gold prices this year remain bright,” GFMS Executive Chairman Philip Klapwijk said in a statement. “Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly.”

Gold, the most-widely-traded precious metal, rallied 25 percent in the past year to $1,453.60 yesterday as the Federal Reserve kept the benchmark U.S. interest rate at zero to 0.25 percent since December 2008 in a bid to pull the economy out of recession. Last week, the European Central Bank raised the main borrowing cost 25 basis points to 1.25 percent.

Investment in exchange-traded funds backed by the metal rose 18 percent to 2,177 tons in 2010, and buyers increased purchases of gold bars, coins and jewelry, according to GFMS.

Demand for physical gold bars rose 66 percent last year to a record 880.5 tons, led by purchases from China. The country’s central bank has raised rates four times since early October to combat accelerating prices. China’s consumer-price inflation reached 4.9 percent in February, above the government’s target of 4 percent.

India, the biggest user, accounted for most of last year’s rebound in global jewelry demand, which increased 11 percent to 2,017 tons, according to GFMS. India purchased 685 tons, up 36 percent.

Central banks bought 73 tons of gold last year, halting a two-decade trend of reducing their gold reserves, the researcher said. The banks were “consistent” net sellers of the metal from 1989 to 2009 and accounted for 10 percent of total supply between 2001 and 2009, according to the report.

Mine supply expanded by 3.8 percent to 2,688.9 tons, led by the biggest producer, China, GFMS said. Miners paid an average $557 an ounce to extract gold, a 17 percent increase from 2009.

Gold will rise as much as 13 percent this year to a record $1,600 an ounce, extending a rally that began in 2001, as investors boost demand for the metal as an inflation hedge, said researcher GFMS Ltd.Prices in New York touched an all-time high of $1,478 on April 11 amid...